Category Archives: Supreme Court

Plaintiffs suing Costco for sex discrimination face another round of litigation thanks to the Supreme Court’s recent dismissal of the Wal-Mart sex discrimination case. Because of the Supreme Court’s decision, the Ninth Circuit Court of Appeals ruled on Friday that the Costco trial court must reconsider whether the plaintiffs can prove that the company should be liable for sex discrimination in store-level promotions. On this question the Court of Appeals, like the Supreme Court before it, ruled the wrong way, discouraging companies from implementing measures that would prevent discrimination.

When companies leave employment decisions like promotions to individual decision-makers without giving them clear, relevant criteria to guide their decisions, those decisions are often discriminatory, albeit sometimes unintentionally. Many corporations, including Costco, provide no uniform criteria – or any guidance at all – for making promotion decisions. This leaves each individual manager (the vast majority of whom are male at Costco) to make promotion decisions as he sees fit. When making decisions with unfettered discretion, people tend to rely on stereotypes and to promote those they are most comfortable with and who are most like them – in short, in the absence of clear criteria, men usually promote men. Witness Costco’s demographics: female lower-level managers at Costco are less likely to be promoted than their male counterparts. It appears that only two of Costco’s top 34 executives are women. The problem is not a shortage of interested or qualified women: Costco’s competitors have a much higher proportion of women in management than Costco does.

Companies can prevent this kind of discrimination. Sociological research shows that holding top management responsible for establishing and enforcing uniform, unbiased promotion criteria goes a long way. When companies provide managers with performance-related criteria for promotion decisions, managers can evaluate whether a candidate satisfies those criteria instead of making a gut-level decision based on personal relationship or other irrelevant factors.

Companies can also prevent sex discrimination in promotions by increasing the pool of candidates. When employees don’t know promotions are available, managers may not even consider qualified women for the positions – they may not know them well, or may rely on stereotypes to conclude that they don’t want promotions. The Costco case illustrates these consequences: the three women who sued desperately wanted promotions, but none of them ever applied for one – they couldn’t, because Costco did not accept applications, and they never knew when promotions were available anyway. An easy fix is to inform employees of promotion opportunities and invite applications. Interested women will throw their hats in the ring and managers will evaluate them based on the relevant criteria, resulting in more promotions of women.

The courts in Costco and Wal-Mart ruled the wrong way because they discouraged companies from adopting these measures. They held that corporations are not liable in class actions for the discretionary decisions of individual managers, creating an incentive for companies to wash their hands of preventing discrimination in their ranks. The more anarchic the system for decisions about promotions and other perks – raises, bonuses, etc. – the more insulation the company has from discrimination class actions. The Costco decision quoted the Supreme Court’s Wal-Mart ruling on this point: “demonstrating the invalidity of one manager’s use of discretion will do nothing to demonstrate the invalidity of another’s. A party seeking to [bring] a nationwide class [action] will be unable to show that all the employees’ Title VII claims will in fact depend on the answers to common questions.” In other words, if the only thing promotion decisions have in common is that managers make those decisions however they want, the company as a whole is not liable for resulting discrimination. In contrast, if the company disseminates guidelines for making promotion decisions that result in discrimination, the company can be held liable.

Smart companies will adopt best practices like enforcing uniform criteria for promotion decisions, both to retain and get the benefit of employing talented people and to avoid discrimination suits by individuals, which are not affected by the Wal-Mart and Costco decisions.

The Court of Appeals sent the Costco class action case back to the trial court for reconsideration, giving the plaintiffs another chance. But the trial court will labor under the higher court’s instruction (again, quoting the Wal-Mart decision) that it “must determine whether there was ‘significant proof that [Costco] operated under a general policy of discrimination.'” Proving that Costco operated under a general policy of laissez faire will not suffice to save this sex discrimination case.

Today the Supreme Court sounded the death knell for Dukes v. Wal-Mart, the class action lawsuit accusing Wal-Mart of paying and promoting women less than similarly- or less-qualified men. To protect corporations from having to do more to prevent gender discrimination than pop a few politically correct paragraphs into the employee handbook, the Supreme Court resorted to a belabored procedural argument that incentivizes corporations to do as little as possible to prevent discrimination. The five-Justice majority did not rule on whether or not Wal-Mart actually discriminates against women – they didn’t let the case get that far. Instead they shut it down by changing the rules of engagement.

One of the plaintiffs’ central arguments was that Wal-Mart has a policy of leaving promotion and pay decisions to the discretion of individual managers, and that these managers have made discriminatory decisions. If the women suing Wal-Mart had prevailed, every American employer would have been on notice that it is not enough to sit on their corporate hands and allow gender discrimination to take its natural course in this way. Instead they would have had to make it their business to ensure that their managers treated women fairly. But the Court didn’t want that, as the majority feels that “allowing discretion by local supervisors” is “a very common and presumptively reasonable way of doing business.” (In his opinion for the majority Justice Scalia also announces, without citing any evidence, that most managers work carefully to avoid discrimination in their pay and promotion decisions when left to their own devices. That makes it all the more puzzling why the higher one gets in the corporate hierarchy in the U.S., the fewer women there are.)

So the Supreme Court looked to procedure. To bring a case as a class action in federal court, the plaintiffs have to get permission from the judge to proceed as a class. This makes sense: you wouldn’t want someone to be able to file a lawsuit on your behalf without an objective outsider considering whether the lawsuit was in your interest and whether the person filing it would represent you well. To protect you from becoming part of a class action that doesn’t benefit you, plaintiffs have to persuade a judge that they satisfy the requirements of what is known as Federal Rule of Civil Procedure 23 before their lawsuit can proceed as a class action.

One of Rule 23’s prerequisites is that “[o]ne or more members of a class may sue…as representative parties on behalf of all members only if there are questions of law or fact common to the class.” The Wal-Mart plaintiffs clearly alleged common questions of law or fact, including statistical evidence that Wal-Mart pays and promotes men more than women; Wal-Mart’s policy of leaving decisions regarding promotion and (within certain ranges) pay up to individual managers; evidence that Wal-Mart has a uniform corporate culture across its stores; and evidence that Wal-Mart’s culture fosters discrimination against women. These are precisely the kind of “common questions of law or fact” that courts routinely accept as satisfying the Rule 23 “commonality” prerequisite.

The Court used this previously clear “common questions of law or fact” requirement to thwart the Wal-Mart women by redefining the requirement beyond recognition. According to Justice Scalia, “common questions of law or fact” now means that plaintiffs must “demonstrate that the class members have suffered the same injury.” In no universe that I have visited do these two phrases require the same thing.

It’s not clear just how far the Court will take this bizarre new rule. Does “same injury” mean that the plaintiffs must show that every single class member was denied the exact same promotion? Or that each one was underpaid by the same amount? Scalia writes that it does mean that suffering “a violation of the same provision of law” won’t suffice as suffering the “same injury.” This is a remarkable and counterintuitive holding: after this ruling, a group cannot sue their joint employer for violating the same legal right for each one of them. Instead they have to prove that the legal violation harmed them in the same way. This is completely backwards: courts exist to redress violations of the law, regardless of whether those violations cause their victims to suffer in the same or different ways. It is thanks to this procedural backflip that Wal-Mart and other employers can now delegate their way out of being responsible for discrimination in their workplaces.

Arguably before Monday’s Dukes v. Wal-Mart decision, American employers were subject to legal liability if they delegated so much discretion to individual managers that those managers created a pattern of discriminating against women – at least, the four Justices in the minority believe that this was the law. Now employers have every incentive to take their hands off the reins and let managers make pay and promotion decisions based on whatever criteria they choose. This is a major loss for women, minorities, senior citizens, the disabled, and any other group that tends to get the short end of the stick in the workplace. The procedural manipulations required to reach this point have caused a major loss for any group of people that seeks to redress a legal violation through a class action: now each individual will have to pay for legal representation alone and probably forego evidence of violations against similarly situated people. Goliath has won, and it is every David for himself.